I have to admit I’m pretty rubbish when it comes to Christmas.
I guess I’m like most blokes and face Christmas with a mixture of guilt and trepidation – guilt that once again I’ve left it so late and trepidation that no amount of guilt-induced present buying will overcome my lack of forward planning.
In stark contrast and without much hinting from me, my Santa seems to get it spot on and miraculously I receive a whole bunch of well thought out and considered gifts.
Of course I am extremely grateful for this but it did prompt me in my Christmas musings to think how we, the British public, approach our financial planning.
I am, of course, interested in why someone might seek financial advice and more often than not I think it is a response to changes in their life situation; things like receiving an inheritance, shifting jobs, retirement getting closer, and so forth.
Most people simply react to these changes and seek an immediate solution; something that is going to instantly solve their perceived problem or need. Chances are they will approach a traditional financial adviser and be sold the adviser’s favoured financial product.
But is this likely to be the long-term solution they really need?
What we should understand is that UK Financial Services plc has grown fat on being product-focused and commission-driven. That’s why so many advisers spend most of their time talking about and trying to sell, arrange or implement financial products to people like you. After all, it’s how they get paid.
It’s not really their fault either as this is what they are trained to do, but because of this product or investment focus, they fail to get to the real nub of the matter and deal with what’s important to people like you and me.
That is, of course, not to say that the correct financial products and investment strategy are not important, but the adviser’s role should be to communicate that finance is about planning and not reacting to stuff. Proper planning gives you a better understanding of what you want out of life and then how to go about achieving it.
The encouraging news is that this type of service (lifestyle-linked financial planning) is growing rapidly in the UK.
But why has it taken so long?
Probably this is down to a lack of public awareness but the real cause, I believe, is that UK Financial Services plc has, in the main, resisted it.
Offering this kind of service requires a huge mental and financial shift by the advisory firm that wishes to provide it. Better adviser qualifications are needed as well as the ability to clearly demonstrate how value is added.
Traditional financial advisers in their cosy relationship with product providers have hidden the cost of advice (their commission) within the product, which has contributed to the commonly held perception that advice is free. It is not and never has been.
But come the end of 2012, this cosy relationship will end as commission is to be outlawed, and all adviser firms will need to set out clearly what they charge and what they will offer in return.
So what you will see, certainly in the independent financial advisor (IFA) sector, is a shift away from product selling towards offering more strategic advice for an agreed fee. Already more progressive firms are working this way as they seek to align their own interests with their clients’.
Do not fear this as a consumer – you will still be able to have your advice charges taken from your investments, but crucially the amount will be agreed upfront between you and your adviser and not between the adviser and the product provider.
At a stroke, the potential for adviser abuse is eliminated and a market created whereby advisory firms will compete on the quality of their service and the value they can create for clients.
In an increasingly complex and fast moving world, today’s modern financial planner can provide you with the help and advice to make your dreams and ambitions reality. The good news is that there will be more of them!
For a list of fee-based certified financial planners go to www.financialplanning.org.uk
Final Point: Don’t be afraid to ask! Engaging the right financial planner on the right terms is probably one of the most important financial decisions you can ever make. Ask the right questions and if you can’t remember them, get a copy of my earlier articles on this subject by going to www.brettinvestment.com.